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How to Become a U.S. Resident Taxpayer

People who are not citizens of the United States and are not residents of the United States are called “nonresident aliens”. The U.S. will impose income tax on them only if they earn income from U.S. sources.

Noncitizens of the United States who are residents of the United States (for income tax purposes, not necessarily for immigration law purposes) must pay U.S. income tax on all of their income, earned anywhere in the world.

There are three ways that a noncitizen of the United States becomes a “resident alien” taxpayer:

Spend too much time in the United States (this is called the substantial presence test);2 or

Choose to be treated as a resident alien by filing the right kind of paperwork–a special tax election.3

Two Other Elections that Make You a U.S. Taxpayer

A small group of people can be U.S. taxpayers for income tax purposes without becoming “resident aliens”. These are nonresident noncitizens of the United States (“nonresident aliens”, to use the jargon) who make one of these tax elections:

Section 6013(g). This is for married couples where one spouse is a U.S. taxpayer and the other is not. The spouse who is a nonresident alien for U.S. income tax classification purposes can elect to be a U.S. taxpayer so the married couple can file a joint tax return. This is usually used for married couples living outside the United States.

Section 6013(h). This is for married couples where one spouse is a U.S. taxpayer and the other is not. It allows the nonresident alien spouse to elect to be a U.S. taxpayer for the full year in which he or she immigrates to the United States, so the couple can file a joint income tax return.

Let’s look at that last one: Section 6013(h). This is the election that allows a married couple–in the year that they move to the United States–to file a joint income tax return.

Why Make an Election?

Why would someone who is entirely out of the U.S. tax system voluntarily choose to become a U.S. taxpayer? To achieve tax savings. Here is how:

Lower Tax Rates

The tax rates for Married Filing Jointly are slightly better than the tax rates that apply for Married Filing Separately. A U.S. taxpayer can only file a joint tax return with another U.S. taxpayer.4

The nonresident spouse must therefore achieve U.S. resident status in order to file jointly and get the lower tax rates.

Itemized Deductions

A nonresident alien does not get to take a tax deduction for itemized deductions, such as mortgage interest, property tax, and the like.

By making an election to be a U.S. resident for the entire year, the nonresident qualifies to take these tax deductions, which will lower the U.S. tax bill.

A typical example:

A nonresident will move to the United States to live permanently. He buys a house in the U.S. in February, but does not become a resident until August.

If he makes a valid election to be a U.S. resident for the entire calendar year, he can take an income tax deduction for the mortgage interest and property tax paid on his house, for the entire year.

Foreign Tax Credit

In a year in which a couple moves to the United States, there will be some income earned in the United States and some income earned outside the United States. The U.S. gives you a foreign tax credit (see Form 1116) for the foreign income tax you paid on foreign source income. That reduces the amount of cash you must pay to the IRS.

But the income has to be taxable in the United States if you want to get the tax credit. The whole idea of the foreign tax credit is that if income is taxed in two places at once, the U.S. will let you reduce how much you pay here in the United States, in order to eliminate double-taxation.

By electing resident status, the nonresident with foreign source income will qualify for the foreign tax credit.

The Section 6013(h) Election

Let’s look at the Section 6013(h) election. Who can use it?

Three Requirements

Here are the conditions for being allowed to make the election:

Only couples who are married on December 31 will qualify to make the election;

One spouse must be a nonresident alien on January 1, and must be a resident alien on December 31; and

The other spouse must be a U.S. resident or a resident alien.

Requirement 1: Marital Status

Marital status on December 31 qualifies you for the election. You still can make the Section 6013(h) election if your marriage occurs on December 30.

Requirement 2: Resident Status at the End of the Year

The spouse who is a nonresident on January 1 must be a resident alien on December 31. Resident alien status is achieved by spending a sufficient number of days in the United States, getting a green card visa, or making an election to be a U.S. resident.

Example 1

H is a U.S. citizen, married to W, who is a nonresident alien. They move to the United States to live permanently. They arrive in the United States in December, 2017.

On December 31, 2017, W has not spent a sufficient number of days in the United States to qualify as a U.S. resident alien under the substantial presence test. She does not have a green card. She has not made election to be a U.S. resident under IRC §7701(b)(4) or IRC §6013(g).

As a result, W is a nonresident alien on December 31. Because W is a nonresident alien on January 1 and a nonresident alien on December 31, H and W cannot make an election under Section 6013(h) to treat W as a resident of the United States for income tax purposes.

Example 2

H is a U.S. citizen, married to W, who is a nonresident alien. They move to the United States to live permanently. They arrive in the United States in December, 2017.

W is a resident alien on December 31, 2017 because she holds a green card. Because W is a nonresident alien on January 1 and a nonresident alien on December 31, H and W can make an election under Section 6013(h) to treat W as a resident of the United States for income tax purposes.

Requirement 3: Citizen or Resident Spouse

The third requirement is that the nonresident be married to a resident or citizen spouse. You figure out “citizen or resident?” on December 31.5

Example 3

H and W are both nonresident aliens on January 1, 2017. In August, 2017, they move to the United States to live. H (but not W) receives his green card on December 1, 2017. They have not spent enough time in the United States to be resident aliens.

H is a resident alien on December 31, 2017, and W is a nonresident alien on December 31, 2017. The couple is eligible to make the Section 6013(h) election.

How to Make the Election

The method of making the election is by attaching a piece of paper to an income tax return where the couple files electing the Married Filing Jointly status.6

Requirements

The statement must contain the following information:

A declaration that the election is being made;

A declaration that the requirements of IRC §6013(a)(1) are satisfied (meaning that the couple qualifies to file a joint income tax return);

The name, address, and taxpayer identification number of both of the spouses.

The statement must be signed by both spouses. Note that this is an extra signature on top of the normal signature that you put on page 2 of Form 1040.7

Sample Statement

Here is a sample statement for you to copy. Type this on a plain piece of paper and attach it to the joint income tax return you are filing.

At the top left of the piece of paper, put a heading so that if your piece of paper becomes detached from your income tax return for some reason, the IRS can figure out how to put it back with your tax return.

What Tax Treatment Do You Get When You Make the Election?

If you make the Section 6013(h) election to be taxed as a resident of the United States? You are not a U.S. taxpayer for all purposes. This is a limited-purpose election.

You are taxed as a resident of the United States, but you are not a “resident alien” for income tax purposes. The definition of “resident alien” gives you three ways to achieve that status, and making the Section 6013(h) election is not one of those three ways. Therefore, even though the Section 6013(h) election–by its plain language–makes a nonresident into a “resident”, and even though a noncitizen is an “alien”, the Section 6013(h) election does not make you into a “resident alien” as that term is defined in IRC §7701(b)(1)(A) or Regs. §301.7701(b)-1.

You are a resident and an alien, in other words, but you are not a “resident alien”.

That little semantic exercise aside, here is the effect of the Section 6013(h) election. You are a resident taxpayer for purposes of:19

Chapter 1 of Title 26, Subtitle A of the Internal Revenue Code. All of the income tax rules are interpreted as if you are a resident of the United States. For easy reference, that means IRC §§1 through 1400U-3.

Chapter 5 of Title 26, Subtitle A of the Internal Revenue Code. This is IRC §§1491 through 1494. Happily, these rules have been repealed so you do not need to worry about them.

Chapter 24 of Title 26, Subtitle A of the Internal Revenue Code. These are the rule for withholding of income tax from wages (IRC §§3401 through 3406).

IRC §6012. This is the rule that says who is required to file an income tax return.

IRC §6013. This is the rule that says who can file a joint income tax return.

IRC §6072. This is where you find the filing deadlines for income tax returns.

IRC §6091. This is where you are told where to file your income tax return.

As you can see, the Section 6013(h) election is a rifle-shot aimed at income tax treatment only.

Note specifically that the Net Investment Income Tax (née Obamacare) does not apply to investment income earned by a nonresident who makes the Section 6013(h) election. The NIIT is found in Title 26, Subtitle A, Chapter 2A.

Also note that estate and gift tax matters are unaffected by the Section 6013(h) election. This is logical: the definition of “resident” for estate and gift tax purposes is entirely different from the definition of “resident” for income tax purposes.

Conclusion

For the limited situation of an immigrating couple where full-year U.S. tax status is useful to reduce income tax liability, consider the Section 6013(h) election. It may save a bit of tax.